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Globalization and World financial Turmoil - A Test for Israel's Economic Policy

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  • Gottlieb, Daniel

Abstract

The World financial turmoil,that beset emerging economies during much of 1997 and culminated after the Russian crisis in the second half of 1998,presents an interesting test case for economic policy in an open economy.Israel's policy response was radical,and -with the benefit of hindsight -successful in maintaining and reinforcing stability,when the odds of many emerging economies,such as Israel,were clearly at risk.Indeed several emerging markets suffered a severe setback in output,a deep and sometimes contagious fall in the value of stocks and a sharp depreciation in their exchange rates,when the world financial crisis evolved.National policy mistakes were punished by rapid capital flight,spearheaded by foreign investors and accompanied by a loss of these countries'international creditworthiness. What can we learn from Israel's experience in the late 1990s? Lesson #1:Macroeconomic stability must be maintained continually. Lesson #2:Enhance the Flexibility of the Exchange Rate Regime Lesson #3:A nominal appreciation can be consistent with a real depreciation

Suggested Citation

  • Gottlieb, Daniel, 2000. "Globalization and World financial Turmoil - A Test for Israel's Economic Policy," MPRA Paper 3150, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:3150
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    File URL: https://mpra.ub.uni-muenchen.de/3150/1/MPRA_paper_3150.pdf
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    References listed on IDEAS

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    1. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    2. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Papers 6833, National Bureau of Economic Research, Inc.
    3. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
    4. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
    5. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
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    Cited by:

    1. Rossitsa Rangelova, 2001. "Small Economies and the Challenge of Globalisation," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 86-103.
    2. García-Fernández, Rosa María & Gottlieb, Daniel & Palacios-González, Frederico, 2013. "Polarization, growth and social policy in the case of Israel, 1997-2008," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-40.

    More about this item

    Keywords

    Financial stability; Israel; Financial Vulnerability; Globalization; Sustainable Macroeconomic policy; Financial Liberalization;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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